Behind the application of chemical fertilisers: What influences dairy farmers' demand?

The application of chemical nitrogen (N) fertilisers is a significant driver of greenhouse gas emissions from food production. While promoting plant growth, they generate emissions and have a detrimental effect on soil pH and water quality. Thus, policymakers have prioritized reducing their application. The presence of high prices, substitute technologies, environmental schemes, and regulations aimed at reducing application makes it difficult to explain what is driving continuing strong demand. In this paper, we estimate the elasticity of demand for chemical N fertilisers by dairy farmers using a 10-year panel dataset (2013-2022) from the EU Farm Accountancy Data Network for Ireland. This study offers important contributions to the literature, methodologically advancing the analysis of how weather variability influences the demand for chemical N fertilisers. Unlike most previous studies, weather data were obtained by matching real spatial coordinates of dairy farms with weather data rasters through a geographic information system. Using static and dynamic models, we also explore the influence of dairy farmers' characteristics, economic variables, and mitigation measures on chemical N fertiliser demand. Results indicate that dairy farmers' demand is sensitive to weather variability, thus complicating optimal application. In addition, we identify three key challenges to reducing application: dairy farmers are inelastic to price changes, chemical N fertiliser is considered a good of necessity, and dairy farmers exhibit path dependence, where an increase in the previous year's application raises that of the current year. These challenges need to be addressed from a policy perspective, and important recommendations are drawn based on these findings.